The cause of Ireland's crisis

December 3, 2010

The European Union and International Monetary Fund are providing a multibillion-dollar "rescue" of the Irish economy--on the condition that the Irish working class pay the price through slashed social programs and increased regressive taxes. The established political parties seem prepared to push through these measures that will cut working-class living standards, but there is building resistance from below. On November 27, more than 100,000 people took to the streets of Dublin for an inspiring demonstration against austerity.

Kieran Allen, a member of the Socialist Workers Party and author of numerous books and pamphlets, including The Corporate Takeover of Ireland, spoke to Shaun Harkin about the backdrop to the crisis. The interview took place before the 100,000-strong march in Dublin.

Tens of thousands march in Dublin to protest austerity and the European Union-IMF bailout (William Murphy)

THE IRISH government finally agreed to apply for a €90 billion ($119 billion) bailout from the International Monetary Fund (IMF) and the World Bank. What's driving the bailout crisis?

THIS IS, in fact, the second bailout crisis. The roots of the crisis go back to the success story of the Celtic Tiger itself.

When U.S. investment in manufacturing began to decline after 2001, the Celtic Tiger was sustained by a huge property boom. Fifteen percent of the workforce was employed in building and one-fifth of all state revenues were derived from property taxes. It was a form of bubble economics that was directly copied from the U.S., with an emphasis on low taxes, light regulation and total reverence for market forces.

To sustain that boom, the Irish banks borrowed about €450 billion ($594 billion) from European banks. The figure is staggering because it is three times the size of the Irish economy.

Just as with China providing huge flows of credit to sustain the U.S. property boom, German and British banks provided the billions for Irish banks. Low levels of capital accumulation in these countries and a deliberate policy of "wage suppression" in Germany meant that there were vast sums available as credit.

All this fell apart in the Wall Street crash of 2008. The Irish banks, and with them a large proportion of the Irish capitalist class, faced ruin. Their solution was to offload the debts of the banks onto society in a desperate bid to shore up insolvent corporations.

The measures they took were incredible. The Irish state issued a guarantee to cover all the banks' debts. They then took off most of the bad loans into a special state agency known as the National Asset Management Agency (NAMA) and pumped billions into saving the banks. By September 2010, they had committed €50 billion ($66 billion) to the banks.

Meanwhile, to pay for this, they embarked on a savage assault on the population. Social welfare was cut by 4 percent, public-sector pay was cut by 16 percent, and new levies and taxes were imposed on the population.

For a period, the global business press looked at the Irish ruling class with awe. In August, Newsweek even named the Irish prime minister as one of the 10 great global leaders, mainly because he led a "tough" regime that was willing to crucify its own population.

Then it all suddenly fell apart for two main reasons. First, the sheer scale of the cutback threw Ireland deeper into recession, and for nine quarters, the economy continued to shrink. Second, NAMA had only taken out bad loans valued at over €5 million ($6.6 million) and left behind a looming crisis in mortgage payments. As the problem of negative equity and mortgage repayments loomed large, billions began to flee the Irish economy.

Behind the scenes, the European Central Bank stepped in and poured in €110 billion ($145 billion), mainly because it was concerned that if the Irish banks went bankrupt, they would pull down their European counterparts. However, that figure represents one-fifth of their total bailout fund for Europe itself--and there was very little security in Irish banks.

In November, they put pressure on the Irish government to take up the slack. The so-called IMF "loan" has nothing to do with the welfare of the Irish population. It is money being transferred to the Irish government so that it can stuff even more billions into Irish banks--so that they can pay off their capitalist brothers and sisters in Europe.

It is a sick scam, and many see through it.

THE GOVERNMENT'S 2011 budget proposal includes cuts to social spending and the minimum wage, with devastating implications for social services, unemployment benefits, pensions and public employees. Can you talk about what the "National Recovery Plan" will mean?

THE FOUR-year national recovery plan is an attempt to raise €15 billion ($20 billion) in extra taxes and through cutbacks. It is a blatant attack on the poor and the wider working class. Only a miniscule €140 million ($185 million) will be raised from taxes on capital. The rest of the tax revenue will come from water charges, new taxes on low income workers, and a 2 percent increase in the value added tax (VAT).

Ten billion euros ($13 billion) of the €15 billion ($20 billion) is supposed to be saved from cuts. These include 14,000 jobs losses in the public services, decreases in heath spending and new student fees. In addition, the minimum wage is being cut.

The package is entirely unworkable. The government assumes that the Irish economy will grow by 2.7 percent for each of the next three years--even though investment by capitalists has halved and the consumption of the working class has been dramatically reduced. In addition, the interest payments on the bank bail fund alone will amount to nearly €10 billion ($13 billion) a year.

You have to rub your eyes and remind yourself of the small scale of Ireland--it is a country with 4 million people and has a GNP of €135 billion ($178 billion).

THE GREEN Party, a junior partner in the coalition government led by Fianna Fail, says it will help push through the austerity budget in a December 7 parliamentary vote, but has said it will leave the government and has called for new elections in January. Cowen has agreed to call new elections, but not before the budget is passed. What are the possible political ramifications of the crisis?

A POLITICAL earthquake is underway. Up until recently, Irish politics was dominated by two right-wing parties, Fianna Fail and Fine Gael, whose roots date back to the civil war of 1922. They commanded more than 80 percent of the popular vote and entirely marginalized a reformist left.

Fianna Fail is an unusual party. It originated as an anti-imperialist party in 1926 and used left rhetoric, much like the present day Sinn Fein. But as soon as it came to power, its main task was to build up Irish capitalism. However, it managed to do this while retaining a base among workers, partially because it identified itself with the creation of a rudimentary welfare state and partially because it was able to change the legacy of its past anti-imperialism into a form of economic nationalism.

Today, Fianna Fail has entered a terminal crisis that could resemble the collapse of the Christian Democrats in Italy. It will get less than 20 percent of the vote in the next election and, interestingly, its rival right party Fine Gael is not making gains. The Greens will simply be obliterated.

The mood is shifting dramatically to the left. In a recent by-election in Donegal South, the most conservative constituency in the country, the combined Sinn Fein, Labour and left independent vote was 60 percent.

The main beneficiary at the moment is the Labour Party, and it may even become the largest party in the state. But even before the next election, it has already agreed to the overall budgetary targets of the National Recovery Plan, while disagreeing on its component parts. Its leaders have said they will not reverse the Fianna Fail cuts.

The Greek Labour Party, PASOK, got elected on the basis of left rhetoric and caved in within two months. The Irish Labour Party will not last two weeks in government before they start carrying out similar measures to Fianna Fail.

At the moment, Sinn Fein is posing left, but this is in marked contrast with its embrace of neoliberalism in Northern Ireland, where it is part of the government.

The space has now opened for a genuine radical left.

THOUSANDS OF students protested in Dublin recently against cuts to education funding, and the Irish Congress of Trade Unions called for a massive demonstration on November 27 in Dublin. Can you describe the resistance that's developing now?

SIXTY THOUSAND people joined a march organized by the Irish Congress of Trade Unions today. But there was mass booing of the union leaders that was spontaneous, deep and prolonged. The reason is that the union leaders have done nothing to lead a fight.

When a pay cut was imposed on public-sector workers, they organized one Saturday march and a one-day strike. But everyone knew these were just token gestures designed to gain leverage to restore social partnership.

Irish unions have been part of such national partnership agreements for 23 years. These agreements outlaw local bargaining, effectively prevent strike action except under very restrictive conditions, and remove all power from the grassroots. They are a form of political exchange where workers took low national wage increases in order that union bureaucrats got a "seat under the table" in talks with the government. During the period of social partnership, union density has declined from 55 percent of the workforce to 33 percent.

When the government broke the pay at the start of the crisis, the union leaders were dumbstruck. They literally did not know what to do--and could only conceive the world in term of forging a new agreement for a time of "national emergency."

Eventually, they signed up to a "More for Less" deal whereby workers will accept huge job reductions in the public service and dramatic changes in conditions in return for a promise of no more pay cuts. That promise, by the way, is likely to be broken--just after conditions have been given away.

The future is likely to see splits and divisions emerging in the unions--as workers desperately seek to gain protection during this crisis.

HOW ARE the roots of the crisis understood? Is it viewed as a product of "greedy bankers" and "bad policy" decisions by the government or as a crisis of capitalism?

THE POPULAR understanding is of greedy bankers and corrupt politicians. But there is growing awareness that there is problem with the system itself. One of the most popular musicians in Ireland, Christy Moore, ended his performance at the recent union rally with "The System Is Not Working," to thunderous applause.

The left needs to explain that the crisis stems from more than just greedy bankers. But we are not lecturers who teach the workers. We want to build on the existing consciousness by developing it and giving expression to the simmering class anger. It is not a large step from attacking bankers to attacking capitalists.

HOW DO you see the role of socialists and the prospects for rebuilding the revolutionary left in Ireland?

THE MAIN task of the revolutionary left today is to construct a mass radical party, one which can offer hope to the huge numbers of workers who want change. Revolutionaries should maintain a separate existence within such a party, aiming to win its adherents to the overthrow of the system.

That has begun to happen with the formation of the United Left Alliance, which brings together the main forces on the Irish far left. It is composed of the Socialist Party, a Trotskyist organization affiliated to the Committee for a Workers International and which has one MEP in the European parliament, Joe Higgins; the People Before Profit Alliance, which has five councilors in Dublin and has a strong input from the Socialist Workers Party; and the Workers and Unemployed Action Group, which has five councilors in Clonmel, in Tipperary.

This alliance could elect between five and seven deputies to the next parliament. In a situation where Labour raised the hopes of Irish workers and then dashed them again, it could become a huge pole of attraction.

All the components in the Alliance are fully aware that an intervention in parliament can only be a weaker accompaniment of mass mobilization on the streets, and real action by workers.

There are, of course, tactical differences between the components of the Alliance. But in a welcome departure from past practice, there is a real fraternal atmosphere between each organization and a willingness to discuss such differences within the context of a fight against a decaying capitalism.